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Value Chain and Market System Development

A Framework for Inclusive Market System Development

Inclusive market system development is increasingly recognized as a potential means for achieving sustainable impact at scale. Building on value chain development methodology, an inclusive market system development approach focuses on building the capacity and resilience of local systems, leveraging the incentives and resources of the private sector, ensuring the beneficial inclusion of the very poor, and stimulating change and innovation that continues to grow beyond the life of the project.

Specifically, the objective of inclusive market system development is to catalyze a process that results in a market system that is

competitive—system actors are able to effectively innovate, upgrade, and add value to their products and services to match market demand and maintain or grow market share;

inclusive—delivering a sustainable flow of benefits to a range of actors, including the poor and otherwise marginalized, as well as to society as a whole; and

resilient—system actors are able to address, absorb and overcome shocks in the market, policy environment, resource base, or other aspect of the system.

Inclusive market systems development is an evolution in thinking around private sector development. It builds on previous work related to the identification of good practice in the delivery of goods and services through market actors1; and on the value chain approach.

Relation to Value Chain Framework

Since 2006, USAID, with ACDI/VOCA's and other implementers' support through the milestone Accelerated Microenterprise Advancement Project (AMAP), has promoted use of the value chain frameworki to encourage a market system approach to economic growth with poverty reduction. The value chain framework is an effective tool for communicating the roles and relationships of value chain actors in bringing a product or service from inception to end market consumers.

Learning over time has revealed the need for an expanded model that expresses the wider context in which value chains operate (see Figure 1 below). This wider context is essential because the goal of inclusive market development goes far beyond moving a product or service from inception through to end market consumers.

Rather, it aims to catalyze a process that results in a market system that is able to adapt as needed over time to deliver a sustained flow of benefits to system actors, including the poor and otherwise disadvantaged or excluded. The market systems framework therefore builds on—and is intended to complement rather than replace—the value chain framework.